Property Valuation
The capitalization rate (cap rate) is calculated as:
ANet Operating Income divided by Purchase Price✓ Correct
BGross Rental Income divided by Total Expenses
CPurchase Price divided by Net Operating Income
DEffective Gross Income multiplied by Vacancy Rate
Explanation
The capitalization rate = Net Operating Income (NOI) / Property Value (or purchase price). It expresses the expected annual return on investment before debt service and is used to estimate the value of income-producing properties.
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